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Recession rains on UK's parade

Britain's economy shrank far more than expected in the second quarter, battered by an extra day's holiday, budget austerity and the euro zone crisis.

UK-RECESSION - When it rains, it pours - and markets were drenched by the latest UK data.

Gross domestic product shrank a much bigger than expected 0.7 percent in the second quarter of 2012, with wet weather and the Queen's Jubilee holiday being blamed.

But Chancellor George Osborne says these are not good enough excuses.

UK CHANCELLOR, GEORGE OSBORNE, SAYING:

"Even without that, these would be disappointing numbers. And I think they just remind us that Britain has some deep-rooted economic problems.

It's the sharpest contraction since early 2009, despite the Bank of England pumping an extra 50 billion pounds into the economy in June.

Joe Grice is Chief Economist at the Office of National of statistics.

CHIEF ECONOMIST AT THE OFFICE OF NATIONAL STATISTICS, JOE GRICE, SAYING:

"One of the lessons probably from the crisis is that we didn't pay enough attention to the balance sheets of the various sectors. The household sector I think has recovered it's balance sheet to a degree, but probably there is some further progress to be made.

Output in Britain's service sector - which makes up more than three quarters of GDP - contracted by 0.1 percent in the second quarter, after growing 0.2 percent in Q1.

But it was construction which accounted for more than half of the overall drop - falling by more than 5 percent.

A boost from the London Olympics is expected, but economist Peter Dixon from Commerzbank, says this is too little too late.

ECONOMIST AT COMMERZBANK, PETER DIXON, SAYING:

"The outlook overall remains fairly grim. The UK private sector is continuing to de-leverage, and I think any growth we do get over the course of the next 12 months will be fairly modest."

Even so, the IMF slashed its growth forecast for the UK last week, by more than any other advanced economy. With a likelihood of further quantitative easing from the Bank of England, the UK government may also need to rethink its austerity policy to turn the economy around.